Immediate annuities

With an immediate annuity, you begin to receive income within a short time after you purchase the contract with a lump sum payment.

You can choose the term of the annuity, or the length of time that you’ll receive payments. Usually the term is either for the rest of your life, or for your lifetime and the lifetime of another person. The first type is called a single life policy, and the second a joint and survivor policy.

You may also name a beneficiary who will receive income if you die before a set period of time — such as 10 years — elapses. Choosing this type of policy, known as period certain or term certain payout, assures that payment lasts at least a minimum period.

Alternatively, you can choose life income with a refund payout. That ensures that payments will continue to your beneficiary until the full value of the contract has been paid. This option eliminates the risk that your principal would revert to the insurance company if you died within a few years of purchasing the contract.

An immediate annuity may be attractive if you receive an inheritance, the payout from a retirement plan, or some other lump sum and want to turn it into a guaranteed income stream.